NOTE 10: STOCK-BASED COMPENSATION

The following table summarizes stock-based compensation costs in our Statements of Operations for the three and nine months ended September 28, 2012 and September 30, 2011:


	Three months ended				Nine months ended
	September 28, 2012		September 30, 2011		September 28, 2012		September 30, 2011
	(In thousands)
Stock-based compensation in:
Cost of revenue	$	702	$	843	$	2,301	$	2,352

Research and development expense		1,512		1,658		4,947		5,265
Selling, general and administrative expense		2,406		2,504		6,874		8,482

Total stock-based compensation in operating expense		3,918		4,162		11,821		13,747

Total stock-based compensation	$	4,620	$	5,005	$	14,122	$	16,099

Stock Options

The Company estimated the fair value of all employee stock options using a Black-Scholes valuation model with the following weighted average assumptions:


	Three months ended						Nine months ended
	September 28, 2012			September 30, 2011			September 28, 2012			September 30, 2011
Expected term (years)		4.70			4.75			4.70			4.75
Volatility		54	%		53	%		56	%		54	%
Risk-free interest rate		0.7	%		1.2	%		0.9	%		2.0	%
Expected dividends		0.0	%		0.0	%		0.0	%		0.0	%

Expected term. The expected term represents the weighted-average period that the stock options are expected to remain outstanding. Our computation of expected term was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior.

Volatility. The Company uses its historical volatility for a period equivalent to the expected term of the options to estimate the expected volatility.

Risk-free interest rate. The risk-free interest rate that the Company uses in the Black-Scholes option valuation model is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term.

Expected dividends. The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future and, therefore, used an expected dividend yield of zero in the valuation model.

The Company is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest. All stock-based awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods. The Company’s estimated forfeiture rate was 6% for both the three and nine months ended September 28, 2012. The Company’s estimated forfeiture rate was 5% for both the three and nine months ended September 30, 2011.

The weighted-average fair value of options granted for the three months ended September 28, 2012 and September 30, 2011 was $1.89 and $2.17 per share, respectively. The weighted-average fair value of options granted for the nine months ended September 28, 2012 and September 30, 2011 was $2.66 and $4.31 per share, respectively.

The fair value of all stock options vested during the three and nine months ended September 28, 2012 was $0.8 million and $3.8 million, respectively. The fair value of all stock options vested during the three and nine months ended September 28, 2011 was $1.4 million and $4.3 million, respectively.

Restricted Stock Units

The fair value of RSUs is equal to the fair value of the Company’s common stock on the date of grant.

The fair value of all restricted stock units issued during the three months ended September 28, 2012 and September 30, 2011 was $2.6 million and $1.9 million, respectively. The fair value of all restricted stock units issued during the nine months ended September 28, 2012 and September 30, 2011 was $10.3 million and $7.6 million, respectively.

Employee Stock Purchase Plan

The value of the stock purchase rights under the Company’s Employee Stock Purchase Plan (“ESPP”) consists of: (1) the 15% discount on the purchase of the stock; (2) 85% of the fair value of the call option; and (3) 15% of the fair value of the put option. The call option and put option were valued using the Black-Scholes option pricing model with the following assumptions:


	Purchase Period Ending						Purchase Period Ending
	June 30, 2012			December 31, 2012			June 30, 2011			December 31, 2011
Expected term (years)		0.5			0.5			0.5			0.5
Volatility		53	%		46	%		43	%		46	%
Risk-free interest rate		0.2	%		0.2	%		0.2	%		0.1	%
Expected dividends		0.0	%		0.0	%		0.0	%		0.0	%

Expected term. The expected term represents the period of time from the beginning of the offering period to the purchase date.

Volatility. The Company uses its historical volatility for a period equivalent to the expected term of the options to estimate the expected volatility.

The fair value of stock purchase rights granted under the ESPP for the purchase period ending June 30, 2012 and 2011, was $1.51 and $2.30, respectively. The fair value of stock purchase rights granted under the ESPP for the purchase period ending December 31, 2012 and 2011, was $1.19 and $2.09, respectively.

As of September 28, 2012, there was $0.5 million of unrecognized stock-based compensation expense for stock purchase rights that will be recognized over the remaining offering period, through December 31, 2012.

Unrecognized Stock-Based Compensation

As of September 28, 2012, total unamortized stock-based compensation cost related to unvested stock options and restricted stock units was $32.1 million. This amount will be recognized as expense using the straight-line attribution method over the remaining weighted-average amortization period of 2.5 years.